WASHINGTON (Reuters) – U.S. lawmakers finalized a historic overhaul of financial regulations as dawn broke over Capitol Hill on Friday, handing President Barack Obama a major domestic victory on the eve of a global summit devoted to financial reform.
In a marathon session of more than 21 hours, legislators hammered out a rewrite of Wall Street rules that will crimp the industry’s profits and saddle it with tougher oversight and tighter restrictions.
The reform must still win final approval from both chambers of Congress before Obama can sign it into law, giving Wall Street one final chance to deploy its army of lobbyists on Capitol Hill. Quick action is expected and it could go to Obama for his signature by July 4.
But the bill has actually gotten tougher in its yearlong journey through the halls of Congress. Democrats rode a wave of public disgust at an industry that awarded itself rich paydays while much of the country struggled through a deep recession caused by its actions.
“We worry about big money. I worry about big money having a corrupting influence, but it is reassuring to know that when public opinion gets engaged, it will win,” said Democratic Representative Barney Frank, who headed the panel.
The most sweeping rewrite of financial rules since the 1930s aims to avoid a repeat of the 2007-2009 financial crisis, which touched off the recession and led to taxpayer bailouts of floundering financial giants. Financial institutions would have to pay $19 billion to cover its costs.
Democrats raced to complete their work before Obama traveled on Friday to Canada for the Group of 20 meeting of economic powers. Obama will be able to tout the reform as a blueprint for other countries as they try to coordinate their reform efforts.
Passage of the bill, now widely expected. will also give Democrats an important legislative victory, alongside healthcare reform, ahead of congressional elections in November.
CURBS ON RISKY TRADING
Lawmakers munched chocolates to stay awake as regulators and administration officials hovered in the wood-paneled room, and as the night wore on they yielded the microphones to staff to debate the bill’s finer points.
The panel completed its work as dawn broke just after 5:30 a.m., more than 21 hours after it sat down to work.
Along the way, they resolved several controversial sticking points that had threatened to scuttle the bill.
They agreed to water down a proposal by Democratic Senator Blanche Lincoln that would have required banks to spin off their lucrative swaps-dealing desks to a separately capitalized affiliate.
Dozens of House of Representatives Democrats said Lincoln’s proposal would force trading overseas, and threatened to vote against the bill if it included the provision.
The compromise allows banks to stay involved in foreign-exchange and interest-rate swaps dealing, which account for the bulk of the $615 over-the-counter derivatives market.
They also could participate in gold and silver swaps and derivatives designed to hedge banks’ own risk.
They would need to spin off dealing operations that handle agricultural, energy and metal swaps, equity swaps, and uncleared credit default swaps.
Lawmakers resolved another controversial element of the bill around midnight when they agreed that banks should face restrictions on their risky trading activities.
As with Lincoln’s swaps provision, the financial industry won significant last-minute concessions in that rule, named for White House economic adviser Paul Volcker.
The final version of the Volcker rule would give regulators little wiggle room to waive the trading ban but would also allow banks to invest up to 3 percent of their tangible equity in hedge funds and private equity funds.
The panel also resolved other issues which will have far-reaching implications for the financial industry.
They agreed to tighten bank capital rules to help them ride out future crises.
Banks would have five years to meet the rules, which force them to exclude some riskier securities from core capital. Banks with less than $15 billion in assets would be exempt.
The panel also agreed to let regulators set higher standards of duty for broker-dealers who give financial advice and agreed to give investors an easier way to nominate corporate board directors.
They also watered down a provision to give shareholders a nonbinding vote on executive pay. That vote would take place once every two or three years, not annually.
(Additional reporting by Roberta Rampton, Rachelle Younglai and Kevin Drawbaugh; writing by Andy Sullivan; Editing by Alistair Bell, Jackie Frank and Anthony Boadle)